2017-18 Budget – Tax Measures
In his 2017-18 Budget, the Financial Secretary proposed a number of tax measures. The relevant legislation for the following measures was passed and gazetted on 25 May 2017 and 2 June 2017 respectively:
- Reducing profits tax, salaries tax and tax under personal assessment for the year of assessment 2016/17
- Increasing the width of marginal tax bands
- Increasing disabled dependant allowance and dependent brother or dependent sister allowance
- Raising the deduction ceiling for self-education expenses
- Extending the entitlement period for home loan interest deduction
Highlights of the measures and implementation details are set out in the following paragraphs. Answers to frequently asked questions (FAQ) and illustrative examples showing how the above measures would reduce taxpayers’ salaries tax and tax under personal assessment are also provided.
You may use the tax computation program provided by GovHK to calculate your salaries tax and tax under personal assessment.
Profits tax, salaries tax and tax under personal assessment for the year of assessment 2016/17 are reduced by 75%, subject to a ceiling of $20,000 per case.
For profits tax, the ceiling of the tax reduction is applied to each business. For salaries tax, the ceiling is applied to each individual taxpayer; but for couples jointly assessed, the ceiling is applied to each couple. For personal assessment, single taxpayers will each be subject to the ceiling. Married couples must make their personal assessment election together and the ceiling will therefore apply to each couple.
The tax reduction is not applicable to property tax. Individuals with rental income, if eligible for personal assessment, may be able to enjoy such reduction under personal assessment.
A taxpayer who is separately chargeable to salaries tax and profits tax can enjoy tax reduction under each of the tax types. For a taxpayer having business profits or rental income and electing for personal assessment, the reduction will be based on the tax payable under personal assessment. It might be different from the amount of tax reduction he would get if he was not assessed under personal assessment. The exact position will need to be evaluated case by case. The Inland Revenue Department will check if the election will reduce the amount of tax payable in each case, and assess each taxpayer in the way most advantageous to him.
To apply for personal assessment, if eligible, the taxpayer should complete Part 6 of his tax return for individuals (BIR60) for the year of assessment 2016/17. Individuals having salaries income only, but no business profits and rental income, need not elect for personal assessment.
The reduction will reduce taxpayers’ amount of tax payable for the year of assessment 2016/17. Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2016/17 as usual. The Inland Revenue Department will effect the reduction in the final assessment. For any final assessment for 2016/17 issued before the enactment of the law, the Inland Revenue Department will make a reassessment. It is expected that excess tax paid will be refunded starting from late July 2017. Taxpayers are not required to make any applications or enquiries to the Department.
The tax reduction will only be applicable to the final tax for the year of assessment 2016/17, but not to the provisional tax of the same year. The provisional tax paid will be applied to pay the final tax for the year of assessment 2016/17 and the provisional tax for the year of assessment 2017/18. Excess balance, if any, will be refunded.
The width of marginal tax bands is increased from $40,000 to $45,000 commencing from the year of assessment 2017/18.
|Year of Assessment||2016/17||From 2017/18 onwards#|
|Net Chargeable Income
|Rate||Net Chargeable Income
|On the first||40,000||2%||45,000||2%|
|On the next||40,000||7%||45,000||7%|
|On the next||40,000||12%||45,000||12%|
The disabled dependant allowance is increased from $66,000 to $75,000 and the dependent brother or dependent sister allowance from $33,000 to $37,500 effective from the year of assessment 2017/18.
The deduction ceiling for self-education expenses is raised from $80,000 to $100,000 effective from the year of assessment 2017/18.
The entitlement period for deduction for home loan interest is extended from 15 to 20 years of assessment commencing from the year of assessment 2017/18, while maintaining the current deduction ceiling of $100,000 a year.
Implementation details of increasing tax band width, increasing allowances and raising deduction ceiling
The Inland Revenue Department will automatically apply the new level of allowances and the new marginal tax bands in calculating the 2017/18 provisional salaries tax. Taxpayers are only required to complete their tax returns for the year 2016/17 and do not need to make separate applications. As for the raised deduction ceiling for self-education expenses, please refer to FAQ 9 to 10 and Example 3 for the arrangements.